A blog about economics, finance, business and corporate governance. My background is in economics, with degrees from Columbia and Johns Hopkins. A career in international development, equity capital markets and as a corporate finance chief and board member lead me to think about events in a different way--hence the blog's name.

Wednesday, May 27, 2015

HP's 2Q FY 2015 Conference Call: Restructuring Fatigue

I listened to the entire conference call for HP's 2Q 2015, and it was all I could do to stay awake, and I have a huge appetite for these calls after twenty or more years doing them as the CFO/emcee or as the analyst/shareholder consumer.

Just for the context, here are the big numbers. Revenue of $25.5 billion, down 7% year-over-year and down 2% in constant currency. Nothing new here, the same quarterly profile and investors exhale that it wasn't as bad as the bears thought. Diluted EPS of $0.87 were down 1%, better than expected I guess, but GAAP DEPS were down17% y/y at $0.55.

Cash flow from operations of $1.5 billion was down 51% over the anomalous prior-year. $950 million was returned to shareholders. $950 million was returned to shareholders, of which $659 million were wasted on shareholder repurchases, but this was the same old song.

So, why I am I writing this post? I honestly feel that everyone believes that there is a very weak case for splitting up the two companies, and you can hear it in the CEO's progress reports and in the tortured analysis of synergies and "dis-synergies," broken into one-time charges, general charges, and further amounts not suggested before. It's too late now, everything has to go forward.

Really, what the split discloses is this: rationalizing the monster that is HP is akin to a neurosurgeon's separating Siamese twins joined at the brain. Delicate, long, massively complicated, and the patients could die after a long effort. No CEO or board has the stomach for this, and so split the company. It is disappointing, because there should be one customer-facing company, but there it is.

Nowhere was this feeling reflected more in the discussion of Enterprise Services: lousy results, changed management, business runoffs, executive changes, lots of new signings, but the same lousy results.

Enterprise was about 43% of quarterly revenue, and Printing about 21%. Personal Systems were 30% of revenue. HP Enterprise will be a GARP stock according to the CEO, but Cathy Lesjak won't be the CFO, instead she will be going to the value stock, HP Printing. It should be pretty restful for Cathy counting all that cash and perhaps consolidating some of that business over time.

It should be interesting, but the bear is in the details in this kind of split, as we said from the outset.The inter-company agreement is where things are really fought out, tooth and nail.